FocusHigh freight rates hinder chemical trading

29 March 2012 16:47[Source: ICIS news]

LONDON (ICIS)--Global container freight rates have shot up in the past three months and will continue to rise, with some routes doubling in price, because of high fuel and insurance costs, as well as piracy and shipping capacity cuts, sources said on Thursday.

A number of shipping companies, including Maersk Line (ML) and the Mediterranean Shipping Company (MSC) have cut vessel capacities on many international lines between Asia and Europe, the US and Africa.

Chemical exporters to Europe and ?xml:namespace>Africa have been especially hard hit, with some of them having to pay double the rates they paid only three months ago.

“Oversupply of container vessels operating on the Asia–Europe trade lane has pushed Maersk Line’s container freight rates to unsustainably low levels,” ML said in a statement.

In order to rationalise its service, ML has removed 9% of its vessel capacity currently operating on the Asia–Europe trade lane, it added.

The Asia–Europe route is the world’s busiest trade lane, but as trading between the two continents has dropped as a result of the global economic slowdown, vessel supply now outweighs demand.

Rate increases have been implemented on routes between Asia and southern, eastern and western Africa, as well as many other major shipping destinations including northern and southern America.

Since the 1 March shipping companies operating lines between Asia and Europe have increased rates by up to $750 per 20-foot equivalent container (€563/TEU), nearly doubling shipping costs. On top of the March increases, most companies have announced a second round of increases from 1 April on all major routes.

ML will increase freight costs by $250/TEU from Asia to western Africa and by $300-600 per high cube dry (HCD) for 20-40 foot containers to southern Africa. Rates from Asia to Europe will go up by $400/TEU.

A southern African trader said it is now paying $112/tonne for solid caustic soda delivered in 20 foot containers from China, up from $98/tonne six months ago.

“I hope there are not going to be any more increases because this is already incredibly expensive,” said the trader.

MSC will increase its Asia to western Africa rates by $250/TEU and Europe-Asia trade route prices will go up by $50-100/TEU for 20-40 foot containers.

Caustic soda exporters to Africa said that because of high freight costs they have lost business in parts of Africa. Eastern Africa has been especially hard hit because it is also affected by piracy activities and congestion at several ports.

Several sources in the caustic soda market have said ships offloading in Mombasa, Kenya, the largest port in eastern Africa, have been severely delayed because of congestion at the port since December.

In some cases it can take nearly double the time to offload ships. According to local media, offloading can now take up to eight days compared with the three it normally takes.

“I now have to pay nearly $2,000/container, up from $1,050/container three months ago, from India to eastern Africa, and this is crippling my business,” said an Indian exporter.

The main problem is that a large number of containers at the port are not cleared in time because domestic transport companies have been late picking them up.

In addition, piracy along Africa’s eastern coastline has pushed up insurance and freight costs.

As a result, firms providing insurance against loss or damage caused by pirate attacks have increased their fees which has resulted in freight rates going up.

According to ICIS, insurance premiums have increased by as much as 43% since last year because of increasing ransom payouts and other costs associated with pirate attacks.

Three months ago it cost about $1,050-1,100/TEU to deliver a container from India to eastern Africa, but now it is nearly double that at $1,850-2,000/TEU, sources said.

“I have reduced my exports by 40% to eastern Africa because rates are just so high and production costs have also gone up, so it is not as viable now to export as it used to be,” said an Indian exporter.

If freight rates continue to rise – and there is no indication to say otherwise – it will most likely have a negative impact on chemical pricing in Africa because the continent is so reliant on imports.

“Looking at oil prices and current trends, I don’t think freight costs will come down in the near future, rather they will further increase,” said an African caustic soda buyer.

Follow Janos Gal on Twitter for tweets on the caustic soda (Africa) market